Amid increased regulatory scrutiny of electronic trading and potential conflict of interests, Bank of America Corporation (BAC) has decided to close its electronic market making unit. The news was first reported by Bloomberg.
The company had initiated the unit last year with an aim to serve the retail client orders related to its Merrill Lynch business. According to close sources, the electronic trading unit – a small part of BofA’s overall operations – was on an advanced trail phase.
In order to earn more profit, BofA was planning to match trades for its customers internally rather than sending them to big electronic market makers like KCG Holdings, Inc. (KCG), Citadel LCC and Virtu Financial, among others. Notably, BofA’s automated market making unit will continue to operate and serve institutional clients.
The tightening probes associated with high frequency trading were one of the reasons for closure of the unit. Several law enforcement agencies including the Securities and Exchange Commission, New York Attorney General, Eric Schneiderman as well as Federal Bureau of Investigation are investigating high frequency trades for possible violations of the law.
Further following the release of the book, Flash Boys: A Wall Street Revolt by Michael Lewis in April, the recent inspections gained momentum. The book deals with the issue of prevalence of high frequency trading and its impact on the overall financial markets.
While BofA decided to close its electronic market making business, E*TRADE Financial Corporation (ETFC) sold its market-making unit – G1 Execution Services LLC – to Susquehanna International Group LLP for $75 million, last year.
The company, at present, is going through a bad phase. A number of investigations connected to its business conduct, litigation overburden and the historic accounting error that led to suspension of its 2014 capital plan, have tagged BofA as ‘too complex to handle’ . Hence, discontinuation of the electronic market making business seems a correct step toward reviving its lost reputation.
Currently, BofA carries a Zacks Rank# 5 (Strong Sell). A better-ranked major bank worth considering is BankUnited, Inc. (BKU), with a Zacks Rank #3(Hold).
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